Saving for later life is becoming increasingly important, so it’s a good idea to give your children a head start as soon as possible. But which account is right for your family?
Whether you’re looking for a high-interest account to create a nest egg for your child, or an interactive option to teach them how to manage their finances, there are an increasing amount of options to choose from.
Which? explains how children’s savings accounts and Isas work, where to find the best interest rates and how to get your kids excited about money.
High-interest children’s savings accounts and Isas
Halifax has recently launched its kids’ monthly saver account, which tops the table for highest interest.
Suitable for children up to the age of 15, you can save between £10 and £100 a month by standing order for 12 months, with an interest rate of 4.50% AER.
After the year is up, the cash is transferred to a Young Saver account – which you’ll have to open at the same time as the monthly saver – which offers an interest rate of 2% AER.
Elsewhere, HSBC’s MySavings account offers 2.75% AER paid monthly on amounts over £10. It’s suitable for children between seven- and 17-years-old, though a parent/guardian’s signature is required for withdrawals of over £50 for under 11’s.
The account must be opened in branch, but can be managed online, via phone or on the bank’s mobile app.
The Nationwide Smart Limited Access account offers 2.50% AER, and can be opened with just £1. It’s suitable for children up to the age of 17.
- Find out more: Best children’s savings accounts
There are also a number of junior Isas available.
Coventry Building Society’s junior cash Isa offers the best rate, with 3.50% AER variable on balances from £1. Interest is paid annually and the maximum age is 17 years old.
Nationwide and Danske Bank both have junior Isas with 3.25% AER variable. Nationwide’s account can be opened with £1, whereas Danske Bank requires a minimum initial deposit of £25. Both pay interest annually.
- Find out more: Best Junior cash Isas
Accounts to teach kids about money
For a more hands-on approach, there are several prepaid cards and apps that give children the chance to manage their own money.
Osper is a prepaid debit card connected to an app with the aim of teaching children how to spend wisely.
Through the app, children can see how much they’ve spent, and their remaining balance – and parents can have full visibility of what their child is buying.
You can also set up a regular allowance, so your children can see how long they need to make their money stretch and practice budgeting.
You can also set spending locks and limits. The app costs £2.50, per child per month.
Go Henry provides a parental online account with a linked account for each child, as well as a pre-paid debit card.
You can set tasks that allow the children to earn more money. You can also invite relatives to contribute, and set limits for spending – including where the cards can be used.
It’s designed for young people aged six to 18, and there’s a monthly membership fee of £2.99 per child.
Targeting eight to 18-year-olds, Nimbl’s service offers children a Mastercard prepaid debit card and smartphone app.
There’s a micro-savings feature where they can save from 5p to £5 whenever they spend. It also offers instant top-ups, a digital pocket money feature, spending alerts and controls, and a function for sending cash gifts directly to the account.
The app costs £15 per card per year – which works out as equivalent to £1.25 per month.
Rooster Money allows kids to create goals to save towards, like a new pair of trainers. When they reach their savings goal, parents can approve the purchase.
Children as young as four can be signed up, and the basic foundation features are free to use.
Rooster Plus is available for £1.99 a month or £14.99 a year. This allows you to connect jobs and chores to allowances to encourage kids to earn their money, set an interest rate to reward saving, set up regular outgoings each week or month to help develop budgeting skills.
You can also add unlimited guardians to the account, so other family members and friends can join in.
If you’d prefer a quirkier option, Santander has plans to offer a digital piggy bank shaped like a Money Monster.
These cute beasts are digital money boxes: their eyes light up whenever money is deposited into the online account, and the account balance shows up in their mouths whenever they are given a little shake.
They come with a free prepaid card for children to spend with. The monsters are expected to cost a one-off fee of £30.
Children’s accounts and tax
If you opt for a child’s savings account, you should be aware of the ‘£100 rule’.
As a parent, if you give your children money and it earns than £100 a year in interest before tax, all of this income – not just the income over £100 – will be taxed as if it was your income. The £100 allowance applies to each parent individually.
This £100 limit applies only to income on gifts from parents, step-parents or guardians. Other family members, such as grandparents or aunts and uncles, are exempt.
If you think this may be a problem, it may be worth choosing a junior Isa instead, as all interest accrued in these account is tax-free.
However, there is a limit on how much money you can deposit in each tax year – for 2018-19, you can pay up to £4,260 into a junior Isa.
You should also note that, while parents are responsible for opening and managing accounts for younger children, all money paid into a child’s savings account or Isa belongs solely to the child.
This means it will be completely in their care when they reach 18.
- Find out more: Best ways to save for children